Two-time finalist for Gerald Loeb Award - this year for Forbes magazine work and in 2010 for online commentary and blogging. I am a C.P.A. and freelance journalist with credits in the Financial Times, Boston Review, American Banker, Columbia Journalism Review, Accountancy Age, Accountancy Magazine, Forbes, and others. I also blog at my own site, re: The Auditors, a specialized news site about the business of the Big 4 audit firms. I have been quoted in the New York Times, Wall Street Journal, Chicago Tribune, Crain's Chicago Business, Chicago Magazine, Chicago Sun-Times, Financial Times, Reuters, Forbes, Harvard Business Review, BusinessWeek, American Lawyer, California Lawyer, American Banker, Columbia Journalism Review, The Times of London, The Guardian, the Financial Chronicle (India) and others. To reach me email fmckenna2010@gmail.com.

10/24/2012 @ 1:17PM4,972 views

Sheila Bair Called It - Foreclosure Lookback Reviews Are A "Ruse"

Sheila Bair called it. The former FDIC chairman’s book, “Bull By The Horns,” has several chapters on the housing crisis. She fought hard, according to her account, for something different and better to help damaged borrowers. She can now say that the OCC/Fed “lookback” reviews mandated by April 2011 consent orders are a “ruse and a waste of time and money.”

You can read about how the enforcement agencies – the Department of Justice, HUD and the Attorneys General – and the regulatory agencies – the Fed, OCC, FDIC, and nascent CFPB – cut the baby in half to create the April 2011 consent orders and the April 2012 settlement. You can take a walk down memory lane with the book, since we haven’t heard much about foreclosures, home prices, robo-signing, dual-tracking on mortgage mods, and mortgage servicing screw-ups during the Presidential debates.

Mission accomplished.

Bair says Treasury Secretary Tim Geithner pitted Bair and Elizabeth Warren, leader of the not yet official at that time CFPB, against each other to make competing proposals for how to compensate homeowners and fix the mortgage servicers. When Warren was widely derided for overstepping her unofficial role and suggesting banks make $25 billion in principal write downs, Geithner never stepped up to explain he had asked for her input.

“Then, with Tim’s blessing, the OCC, DOJ, and state AGs agreed to limit the global settlement discussions to the enforcement agencies (DOJ, HUD, and the AGs) and exclude the regulatory agencies, which of course took the FDIC and CFPB – led by us troublemaking women – out of it.”

Bair says in the book she tried to influence the OCC/Fed “lookback” review process but came up short. She wrote to Geithner on February 7, 2011 suggesting an independent claims commission for foreclosures occurring after January 1, 2008. The independent commission would determine the amount of compensation for damaged borrowers. The OCC, now in charge of drafting consent orders with the Fed to enforce the ‘lookback” reviews, was against this approach.

The OCC/FED consent orders signed in April 2011 fall short, in Bair’s opinion, in three big ways:

No hard metrics that can be used to measure improvement in servicing borrowers legally and efficiently.

Treat all the servicers the same, even though there are huge difference in size and quality of operations.

Allow banks to use well-paid consultants to calculate damages to borrowers and to base the calculations, in many cases, on sampling not a full review of each borrower’s case.

It’s the last point which is has proved to be especially insidious. I agreed with Bair’s assessment of the entire process – it’s a ruse and a waste of time and money – in a recent American Banker BankThink column.

Financial services consultant Promontory and global audit firm PricewaterhouseCoopers are the biggest winners, with seven of the 14 foreclosure review engagements between them. Deloitte is responsible for the behemoth engagement at JPMorgan Chase that includes reviewing mortgages from its former audit clients Bear Stearns and Washington Mutual. Ernst & Young is leading engagements at MetLife and HSBC and assisting Promontory with a big job at Bank of America, where the foreclosures include many mortgages messily underwritten and sloppily serviced by Countrywide.

PwC has reportedly billed more than $50 million for Ally Financial’s Residential Capital since May 2011. The total estimate for that engagement is now at least $250 million. Sources estimate PwC’s total revenue for its four foreclosure review engagements will eventually exceed $1 billion– its largest consulting win ever.

It’s in consultants’ best interests to extend the foreclosure review engagements as long as possible without coming up with an estimate for each servicer of its total liability to borrowers. The big banks don’t want to see that number – they would have to disclose it and few have done any preliminary disclosure of this exposure or even the costs of the reviews. The consulting firms want the megabanks as clients, now and in the future.

Sheila Bair had another chance, before coming out with her book, to change the course of the foreclosure reviews. She balked. Had she already given up the fight before even leaving the FDIC? Was she saving her worst criticisms of the OCC and Tim Geithner for her book?

On June 11, 2011 Bair testified before the full House Committee on Financial Services for a hearing entitled,“Financial Regulatory Reform: The International Context”.Bair had her last great chance to strongly indict the OCC and Fed publicly, on the Congressional record, for refusing to set up a truly independent claims review/validation process and allowing the banks to select their own consultants to calculate the damages.

There was still time. The contracts with the “lookback” consultants were not even signed.

Bair is instead diplomatic and lukewarm in her critique of the planned process during questioning from Representative Maxine Waters (D-CA). She saved her strongest words for the book, which came out more than a year later and much too late to have an impact for damaged borrowers.

Ms. WATERS. So this recommendation about letting the servicers hire outside consultants to investigate them is of concern to, I suppose, many of us. Do you believe that outside consultants can do the job that is needed to be done, instead of a regulatory review?

Ms. BAIR. There needs to be a robust validation process. So, yes, we would like to see an interagency examination team reviewing sizable samples of the reviews that the independent consultants are doing to validate the work. I think everybody is operating in good faith here, but an extra set of eyes, given the importance of this project, would be helpful.

Bair is on a whirlwind book tour. She’ll be in my town, Chicago, on November 7 at the Executive Club. I’ll be there. Maybe I can persuade her to use the book tour bully pulpit to call out the “ruse” and maybe cut this “waste of time and money” off at its knees. In particular, I’d like Bair to speak out against Deloitte reviewing their own work from Bear Stearns and Washington Mutual as “independent” consultant at JP Morgan Chase.

Bair knows, and I know, the “independent” foreclosure reviews are anything but.

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Ms Blair is not creditable as she did not do her job in protecting the consumer and as banks where allow to discriminate under her because they did not hire a diverse work force and the minority home loan borrowers were either turned away or sold BS or charged more that whites.

There was such a hate between Blair and Geithner that 1.3 million Washington Mutual Bank government insured borrowers are left in limbo as Ginnie Mae, Wells Fargo and Wells Fargo carry out this RICO operation that great benefits Ginnie by foreclosing on loan it does not have the ability to modify or foreclose because no can be illegal in title as the owner, because as with ever Ginnie Mae Mortgage Backed Securities (MBS) pool you have blank Notes relinquish to Ginnie Mae making the Note non negotiable.

The public does not understand that contracts (Notes) were broken when you let a non lender had a type of ownership without the ability to accept payments work with a partner to service mortgages because they themselves cannot preform this function. Ms Blair should have question this quasi ownership of WaMu of the government insured loans being held by Wells Fargo as 95% of all of these types of loans are in this limbo state of ownership without a party paying for the loans but is demanding a payment to be paid.

How many of Ms Blair banks under the FDIC where involved in the originating of FHA & VA loans that they held or sold to correspondent partners like WaMu, IndyMac or Countrywide are a part of the look back review process? Borrowers only know that one of the three failed or purchase banks/mortgage lender are currently being service by another who is claiming that they actual own the loans like in the case of WaMu loans being held by Wells Fargo.

Nutty is that the Secretary of HUD is not aware as to how Ginnie Mae is aiding others to defraud the Federal Government so that it can pay the “investors” who have purchase securities. The investors did not purchase home mortgage loans because they cannot, so illegally foreclosing on the properties are needed to be preformed Ginnie Mae does not have the right to modify or foreclose.

Now Ms Blair is back with a book that telling the the look back is a ruse, which she standing next to Obama who announced The President’s Making Home Affordable that was suppose to help 7 to 8 million homeowners, as she sad she cringed because she knew that was not going to happen. Ms Blair is hail as the hero during the crisis but other than saving her Insurance fund at the determent to the homeowners, who at this point the OCC & Fed identify 800,000 applicants who were denied HAMP modification when in fact as they determine were qualified for a HAMP modification.

However under the contract (Notes) the homeowners signed the agreement was voided the moment the loans were relinquish to Ginnie Mae, who is not authorize to do home mortgage lending.

Secretary Donovan at this late date does not want to be walked through the minefield over at Ginnie Mae, were there is a common thread with all the loans and that is a blank Note that will forever be blank because Ginnie Mae cannot be on the face of the Notes and a Note without a debt is a worthless piece of paper because it is not a security instrument (mortgage, deed of trust, security deed) as there is no proof to show the local land recorder that monies exchanged hand as Ginnie Mae cannot originate, buy or sell a home mortgage loan.

We the tax payers at this point are due with treble damage included from the 800,000 non modified loan the OCC & Fed found that have been foreclosed, should be paid $24 billion in the false claims. Ginnie Mae has allowing and is still allowing MBS to be sold that are worthless because they don’t have any underlying collateral. Its called securities violation with a false claim charge on top!

Excellent old-time journalism. Keep it up. I’m reading Michael Lewis’s account of the collapse of the residential mortgage bond market, “The Big Short.” There’s a passage where one of his character’s recounts that in March 2007 they realized the mortgage bond market was probably rigged. “The fraud was so obvious that it seemed to us it had implications for democracy. We actually got scared.”

As a former federal prosecutor and concerned citizen I’ve felt the same way since late 2008. The Office of Comptroller of the Currency is the most captive regulatory agency in modern times and epitomizes a decades-long process in which anti-regulators have captured and corrupted our government’s regulatory process.

Hi Francine, great points on the foreclosure review…We’ve started a review asking that the deadline be extended until after the results of least 215,000 of the cases have been released to the public. If you’re interested in reading more and/or signing: https://www.change.org/petitions/postpone-the-deadline-for-the-independent-foreclosure-review-until-215-000-cases-have-been-released